Higher minimum wage did not reduce restaurant employment after all (updated)

The Arizona Restaurant Association (ARA) is the principal chamber of commerce organization that has sought to defeat and to undermine Arizona’s Minimum Wage Act first approved by voters in 2006, and reaffirmed by voters in 2016.

The ARA was behind HB 2579, our Tea-Pulican legislature’s attempt to gut the 2006 Minimum Wage Act by narrowly redefining “wages.” The ARA participated in a failed legal challenge to the sufficiency of the 2016 Minimum Wage Initiative, and after the Minimum Wage Initiative was passed by voters, the ARA participated in the failed legal challenge to overturn the will of the voters.

The ARA’s position is always that the minimum wage (most restaurant workers are paid a sub-minimum wage and must rely on the kindness of strangers for tips) is devastating to restaurant businesses. The ARA always claims that a higher minimum wage will reduce employment in the restaurant sector.

While some marginal businesses teetering on failure may have closed due to higher wage costs, those businesses have been replaced by others that are competitive at the higher wage costs. And isn’t that what “creative destruction” in a free market economy is all about?

Remember those claims during the Proposition 206 debate that increasing the minimum wage would lead to less hiring and people being laid off from low-wage jobs?

The latest unemployment statistics suggest that hasn’t happened.

In fact, the data from the state Office of Economic Opportunity shows that the number of people working in bars and restaurants last month not only increased but did so at a rate six times higher than the economy as a whole. Employers who run food service and drinking establishments added 7,800 new workers compared with February, a 3.3 percent boost.

By contrast, month-over-month employment in the private sector for the entire state grew just 0.5 percent.

Overall, there are now 242,800 people in that sector of the economy, 8 percent more than there were a year ago. That compares with a 2.5 percent increase in all private sector employment in the past year.

This does not just appear to be a one-year bump in employment.

Doug Walls, the research administrator for the agency, said the entire leisure and hospitality sector, which also includes hotel workers and those who work in the entertainment industry, said employment growth in this sector for the first three months between 2010 and 2016 averaged about 9,500. But for the first three months of this year, the number of jobs is up 14,200.

The new figures come despite the fact that the state’s minimum wage, which had been $8.05 an hour last year, is now $10. Both figures can be $3 less for those who earn tips provided the employer can show their workers actually got that much.

It was the Arizona Chamber of Commerce and Industry that led the opposition to Proposition 206 with claims there would be fewer entry-level and low-wage jobs as employers culled payrolls to cover the higher expenses.

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Economist Dennis Hoffman of the W.P. Carey School of Business at Arizona State University, said that, no matter what, the job growth, even in the face of rising wages, can’t be denied.

“Any headwinds that might have been created by mandated higher labor costs have clearly been offset by tailwinds in the industry that have created a demand for workers,” he said.

Overall, the state’s seasonally adjusted unemployment rate dropped a tenths of a point last month, to 5.0 percent. The economy added 11,200 private sector jobs, a figure more or less in line with the average of 11,900 since the end of the recession.

While jobs in leisure and hospitality grew at the strongest rate, some other sectors actually lost employment. That includes manufacturing, which shed 1,300 jobs last month, much of that due to losses in employment in both the aerospace industry as well as the production of non-durable goods, things like food, snacks and sodas.

Retail trade also continued its lackluster showing, losing 200 jobs. While there were gains in some sectors, like employment in stores that sell building materials and gardening supplies, they were offset by the loss of 600 jobs in department stores as shoppers shift their buying habits online.

Overall retail employment has fallen every month this year. Department stores, including Macy’s and JC Penney, have shed nearly 100,000 jobs since October—more than the total number of coal miners or steel workers currently employed in the U.S. Even America’s richest areas are getting hit: Employment in New York City clothing stores has fallen three years in a row, the longest period of decline on record, going back to the early 1990s.

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Altogether, the destruction of jobs in retail, mining, and manufacturing raises a thorny question: Is it really so bad when one industry’s jobs go away, if the country as a whole is getting richer and the number of jobs is still growing?

Indeed, as retail has moved online, some economists argue that e-commerce has created more—and, perhaps, better paying—work. The economist Michael Mandel estimates that since the Great Recession began, the e-commerce sector has created 355,000 new jobs, compared to about 50,000 total jobs lost in physical retail stores. Much of that growth has come from large fulfillment centers in warehouses. Warehousing is not used exclusively for e-commerce, but the change in warehousing jobs is highly correlated with Amazon’s job growth in the state; since 2009, warehousing employment has soared by almost 50 percent. Fulfillment centers pay 26 percent better than general retail jobs, and warehouse wages are currently growing twice as fast as the national average.

Politicians are often nostalgia merchants, selling the irreplaceable virtues of whatever cultural or economic norm is in its twilight. . . . Instead, lawmakers should be focused on reducing human suffering as some job sectors shrink or disappear altogether. That might include universal health care that isn’t tied to any one specific company and moving vouchers to help workers manage the transition to a new area for work. Overall it requires an approach that is the opposite of then-candidate Trump’s message on the campaign: Not “how can we rebuild the economy of about 40 years ago and freeze it in carbonite?” but rather “what sort of federal policies are best for an economy that might be embarking on a period of industrial churn?”

That would be the “creative destruction” of a free market economy, mitigated by responsible government assistance policies. But we don’t do this in Arizona because of the chamber of commerce organizations that control our state government.

UPDATE: The New York Times editorializes on this last point, As Retail Goes, So Goes the Nation: “[T]his shift in employment raises important challenges and implications for public policy. People who are laid off need help, and newly created jobs are not necessarily perfect substitutes for lost jobs. The government needs to effectively manage inevitable change for the greater good.”

The United States has enjoyed extraordinary economic progress over the past four decades, but average incomes for today’s young workers are lower than they were in 1975.

Over the past four decades, young American workers saw their average incomes decline by 5.5 percent after adjusting for inflation, according to new figures published Wednesday by the U.S. Census Bureau. In 1975, workers aged 25 to 34 had a median personal income of $37,000 in modern dollar terms. In 2016, that number was down to $35,000.

Earnings have declined despite the fact that today’s young people are better educated than 40 years ago. Thirty-seven percent of young people had a bachelor’s degree last year, compared to 22.8 percent in 1975.

In part, experts say, the decline in average incomes results from new impediments to financial success that confront millennials, but that older Americans did not have to overcome. A more unequal economy presents fewer opportunities for younger workers.

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The typical income for a young woman in the labor force increased 28.5 percent since 1975, from $23,000 to $29,000 in 2015 dollars.

Meanwhile, young men’s earnings have declined. For a man in the labor force aged 25 to 34, the typical income declined from $46,000 in 1975 to $40,000 last year.

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The stagnant fortunes of young people comes amid broad overall gains for the American since 1975. Median personal income for all Americans has increased from about $23,000 in 1975 to $30,000 today in 2015 dollars. (Those figures include many retirees and students.)

Data from the Bureau of Labor Statistics on those with full-time, year-round work confirms the negative trend for the young. Typical weekly earnings for workers aged 25 to 34 in this category have declined 4 percent between 1979 and last year after adjusting for inflation, according to Arloc Sherman, a researcher at the liberal Center on Budget and Policy Priorities.

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[I]nequality of income has increased in general in the American economy, meaning that poorer workers — many of whom are younger — have not enjoyed the same progress as more affluent workers, who tend to be older.

“It’s a big problem, even for people with college credentials,” said Gary Burtless, an economist at the nonpartisan Brookings Institution. “Those less educated people have fared quite miserably.”

7 Responses to Higher minimum wage did not reduce restaurant employment after all (updated)

What we don’t see in this analysis is an analysis. There are two books on minimum wage, one by Krueger and one David Neumark.

Neumark takes Krueger on directly, going through and showing in detail how good researchers put in proper controls. Neumark shows how minimum wage reduces incomes of the poor; permanently changes the arc of their lives by taking away the rungs of the ladder that would allow them to proceed upward and shows how minimum wage results in high income kids taking jobs away from low income following minimum wage hikes

Maricopa County was the top population gainer in the country, number one. All these people who want access to our schools are flooding here.

What were the controls for population growth? What were the controls for tourism levels?

Where is the simple income distribution analysis that you guys always tout?

What percentage of hourly earnings are going to the lower end of the spectrum now as opposed to prior to minimum wage?

And he doesn’t cover any of the studies on the minimum wage since those books were published. The median effect among these studies is zero effect, or a very small one. In fact, a plurality of labor economists surveyed believe that even if there are minor employment effects (elasticity ~ -0.1), there are still normative or distributional reasons to support minimum wage increases.

I had predicted it would affect restaurant and hospitality employment in a negative manner. If these figures are correct (after all the numbers are not found in in government reports, but are interpolated from other seeming reliable sources) then I am wrong and I am darned happy that I am. I take no pleasure in being correct when it means suffering for people by them losing their jobs through no fault of their own. I hope when the official reports come out that it is true and that sector of the economy has done well despite the minimum wage increase.

“…are angry because they feel entitled to profitability and are engaging in rent-seeking behavior (lobbying and legal challenges) in order to get it at the voters’ expense.”

Yep. Back in Silicon Valley pretty much everyone I hung out with was a millionaire, and a handful of them had hundreds of millions. You will never meet people who feel more entitled than the very rich.

Being “entitled” to a living wage and being “entitled” to guaranteed profits are apples and oranges.

The reason why the restaurant lobby is so up-in-arms isn’t because of some altruistic concern about the broader economy. It’s because the restaurant industry faces a very elastic demand curve and is subject to a lot of competition, something that limits pricing power.

They’re upset because an increase in costs can’t be readily passed on to consumers due to a wide variety of other substitutes, meaning that they have to eat the costs and lose profits, and are angry because they feel entitled to profitability and are engaging in rent-seeking behavior (lobbying and legal challenges) in order to get it at the voters’ expense.